Dubai International Financial Centre clears major hurdle

The development of the Dubai International Financial Centre took a major step forward this week with the announcement that the UAE Cabinet has approved its Federal Decree.

For the past seven months this epic project to create a new financial hub in the Middle East has been virtually on-hold while the UAE authorities wrestled with its constitutional implications. This hardly seems very long delay for a project of this significance but it has been frustrating for DIFC officials and financial institutions keen to set up in the new free zone.

However, the framework that has emerged from the consultative process looks attractive all around, and officials say the final decree is a better document for the time spent on it.

For one thing the DIFC will be unique among major financial centres of the world in being able to create its own legislation. Regulations will be proposed by its regulatory council and submitted to the DIFC chairman, Dubai Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum, for approval.

This will give the DIFC a remarkably rapid and flexible legislative framework, and an ability to respond to changes in world financial markets far more quickly than many of its rivals. However, the regulator will have to report annually to the UAE authorities on compliance with the Federal Decree, and submit to regular federal inspections.

So what next for the DIFC? First, The Supreme Council needs to enact the Federal Decree. Then officials will roll out the DIFC's own Regulatory Law and Company Law over the next month or two. And by mid-September the first DIFC licenses should be granted, just before the IMF and World Bank annual meetings in Dubai.

Deutsche Bank and Julius Baer appear to be first in the queue with another two financial institutions not far behind them. Thereafter around 30 major financial institutions are said to be waiting in the wings ready to begin the application process.

This is still someway short of the DIFC's target of more than 100 financial institutions, and a major TV advertising campaign will start this autumn on CNN, Bloomberg and CNBC to woo the global financial community.

The DIFC has five pillars on which it hopes to build a world-class financial community in Dubai: asset management, Islamic finance, re-insurance, back offices and a regional stock exchange. And it will be interesting to see which of these pillars proves to be the strongest.

Understandably officials are coy about prospects at the moment. They hope a strong regulatory environment, the Dubai life-style with minimal commuting, zero taxes, beautiful new offices, access to professional staff, time-zone positioning and the growth prospects of the region will tempt many international firms to the DIFC.

It is this value-proposition that the DIFC now has to sell, but this week's Federal Decree shows that the UAE's constitution is well up to handling the implications. That alone should reinforce confidence in the new free zone.